It is a foundational principle of tort law that the purpose of compensation is to put the plaintiff back into the position they would have been in had the tort not been committed. In the context of a wrongful dismissal claim, the resultant damages are meant to ensure that the plaintiff has reasonable notice of their termination, in order to allow them the time needed to find comparable new employment.
In Ontario, plaintiffs can alleviate the burden of the loss of their income in a number of ways. Some examples of programs that serve this purpose are Employment Insurance (EI), Workplace Safety and Insurance Board (WSIB) income replacement benefits (where injury or disability arise in the workplace), Canada Pension Plan (CPP) Disability benefits, private pension benefits short-term disability benefits (STD) and long term disability (LTD) benefits.
The test for whether a monetary benefit can be deducted from an award of wrongful dismissal was examined by the Supreme Court of Canada in the decision IBM Canada Limited v. Waterman,  3 SCR 985, 2013 SCC 80 (CanLII). Using past case law, the court determined that private insurance schemes can be exempt from deduction from an award for damages arising from a wrongful dismissal.
There are several underlying factors that are used to determine whether a benefit under private insurance is deductible. First, the courts will examine the nature and purpose of the benefit. Where the benefit is designed to prevent the loss of wages, it is more likely that it will be deducted. Second, the courts look to who pays for access to the benefit. Where the employee is paying the premium for the benefit, whether directly or through a deduction on their paystub, there is a higher chance that the benefit will not be deducted from an award for wrongful dismissal.
In Waterman, the employee’s pension benefits were not meant to prevent against wage loss. Instead, the pension benefits were considered to be a form of delayed compensation to allow the employee to retire at a later point in time. Therefore the pension benefits were not deductible from wrongful dismissal damages.
The following is a list of other such benefits and whether or not they can deducted from an award resulting from a wrongful dismissal:
EI is a unique benefit. The Employment Insurance Act, S.C. 1996, c.23, s. 46(1) and (2) states that an employee must deduct the amount of EI they received during their notice period and remit it to the Receiver General.
Any monetary benefit accruing from a WSIB claim can be deducted from an award for common law reasonable notice pursuant to a claim for wrongful dismissal. The justification is that WSIB is meant to cover wage loss and is paid for by the employer. This comes from the decision in Jensen v. Schaeffer, 2011 ONSC 1342 (CanLII).
These benefits are largely self-insured and funded by an employer. Where this is the case, the STD benefits will likely be deducted from an award for wrongful damages.
The deductibility of LTD benefits are contingent on the unique circumstances surrounding each case. Where the benefits were paid for by the employee, there is a higher chance the benefits will not be deductible. Where the benefits were paid for by the employer, there is a higher chance that they will be deducted from an award for wrongful dismissal damages. It is important to know that the insurance company will likely get to offset LTD benefits with any wrongful dismissal damages received.
CPP Disability Benefits
These are considered to fall under the private insurance exception from deduction. Employers cannot deduct amounts paid to the employee under the CPP Disability benefit from an award for wrongful dismissal damages.
About the Author: Walter Yoo is an Associate Lawyer at Monkhouse Law where he practices Employment Law.
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